Time To Roar Again
Singapore, a boring market? This may have been so for the past few years, but things are set to change in 2014. We believe that the conditions are ripe for the market to outperform its regional peers. In particular, we expect the small caps to spring back to life following a rout in 4Q13. Our STI target of 3,480 is based on a 15x FY14 P/E.
•Worst-performing market to regain lustre. Singapore seemed to have lost its shine over the past few years, no thanks to domestic restructuring as well as its neighbouring countries’ rapid growth. Compared to the US and Asean markets, the country’s stock market was the worst performing by a mile over the last three years. However, things are about to change next year as we expect Singapore to make a comeback.
•Reasonable valuations likely to expand. The market’s valuation, at a 13.2x FY14 P/E, is not expensive compared to its historical average. There are grounds for P/E expansion given that we expect to see a flight to safety and some stability in 2014. Based on a 15x FY14 P/E, our target for the STI is 3,480, while total returns, including dividends, will work out to 17%.
•Sector upgrades. We have made a few sector upgrades over the past two months, reflecting our positive views on the market. Incidentally, all of the upgrades were for the cyclical sectors, namely consumer, offshore & marine, plantation and technology.
•Small caps rock! While the blue chips are expected to deliver decent returns, what looks more interesting are the small caps. The small caps under our coverage are currently trading at 9x FY14 P/Es and are enjoying growth rates exceeding 20%, vs the large caps’ 14x and mid caps’ 15x FY14 P/Es. Construction sector and S-chips, both of which are largely in the small caps space, should see a pickup in investor interest.
•Our Top Picks are DBS, Ezion, Eu Yan Sang, First Resources, Keppel REIT, King Wan, Lian Beng, Midas Holdings, MTQ, Nam Cheong, OSIM International, Sembcorp Marine, ST Engineering, and Yangzijiang.
Publish date: 23/12/13